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Job growth disappoints
Economy created just 112,000 jobs in June, less than half of forecasts; unemployment flat at 5.6%.
July 2, 2004: 3:26 PM EDT
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - Job growth slowed dramatically in June, as employers added just 112,000 workers to payrolls last month, a number that came in well below forecasts by private economists.

Was the weakness in June job growth ...
  A troubling sign of a slowing economy?
  A smudge on an otherwise bright picture?

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The gain was about half of May's revised gain of 235,000 jobs, and was the weakest since February following three straight months of strong job growth, the Labor Department reported.

Economists surveyed by had forecast a gain of 250,000 jobs, on average. The unemployment rate was 5.6 percent, unchanged from the May reading of 5.6 percent and in line with economists' forecasts.

Aside from the sharp slowdown in job growth, the report contained more bad news for workers.

Average hourly wages rose 2 cents, or 0.1 percent, to a seasonally-adjusted $15.65. But that was well below the 0.3 percent gain that economists had forecast.

In addition, the average work week fell to 33.6 hours for private sector employers last month from 33.8 in May.

"This economic recovery is a lot more fragile than most of us thought," said Anthony Chan, chief economist for Banc One Investment Advisors.

In Washington, President Bush hailed the report.

Speaking at the White House to a gathering of small business owners, Bush said the job report shows that 1.5 million jobs have been created since August. "To me that shows the steady growth," he said.

Sen. John Kerry, Bush's likely Democratic challenger in November's election, said at a campaign stop in Minnesota that June's job growth number was disappointing, and he again attacked Bush's record on jobs.

"Don't tell the people getting those second-rate jobs, don't tell the people working two or three jobs that's the best we can do. We have a million and a half jobs lost and I don't believe that's the best we can do," he said. The number of jobs lost since Bush took office in January 2001 is actually about 1.2 million, according to Labor Department statistics.

Part of the slowdown in June was from a drop in manufacturing jobs after the sector had finally pulled out of a 42-month slump and posted four straight months of jobs growth. But manufacturers cut 11,000 jobs last month.

The construction industry posted no job gains and the retail sector added a modest 7,000 jobs, by far the weakest month for an industry that's added 184,000 jobs so far this year.

The services sector -- the biggest component of the world's largest economy -- added 122,000 workers but that was the second-weakest gain of the year.

Most economists said that despite the weak report, they expect solid growth to resume soon and continue throughout this year.

"Job gains were clearly below expectations and trend," said John Silvia, chief economist at Wachovia Securities. "There may be some bounce back next month in specific sectors. Slower job gains may also reflect the impact of higher oil prices and uncertainty in the spring."

"While this raises a red flag, no one should be in panic mode just yet," said Drew Matus, economist with Lehman Brothers.

But some analysts noted job growth probably won't be as strong as it was in the spring, when the economy created 300,000 jobs a month on average in March, April and May.


"The economy is clearly cooling or downshifting somewhat," said Sung Won Sohn, chief economist at Wells Fargo Banks, adding that it wasn't "necessarily...getting into deep trouble." He said job growth should still average "a couple hundred thousand" jobs a month for the rest of the year, on average.

On Wall Street, stock prices fell after the report. But Treasury bond prices soared and yields, which move in the opposite direction, fell sharply. That's because some investors were betting weaker-than-expected job growth may slow the Federal Reserve from hiking interest rates aggressively.

The Fed, the nation's central bank, raised its benchmark rate a quarter-point Wednesday, the first increase in four years.

"The stock market didn't want the economy to grow too quickly because they were worried about aggressive rate hikes," said Chan. "They wanted the Goldilocks approach where everything was just right. But now they realize that maybe the porridge is a bit too cold for their taste."

"I don't think the recovery is in danger," said Banc One's Chan. "But I think what we have here is a situation where the Federal Reserve will probably look at the numbers a lot more closely. If we see another two or three economic statistics that surprise us, yes the Fed can pause and not raise rates in August."

Bad news for Bush?

The report can't be good news for Bush, said Greg Valliere, political economist for Schwab Washington Research, noting the administration will have to hear more from the Kerry campaign about how this could be the first administration since Herbert Hoover to have job losses on its watch.

"I think that they were hoping to totally remove that trump card, and it looks like they might not be able to," he said, adding, however, that one weak report shouldn't panic Bush supporters.

U.S. Economy

"If we got a second successive weak number in early July, then I would really worry if I was in the White House," he said. "We only see three more reports before the election."

Treasury Secretary John Snow said he's not concerned about the jobs report.

He told CNNfn's Market Call that the Labor Department's household survey, used to generate the unemployment rate, picks up self-employed workers more effectively than the separate payroll survey of employers -- an issue on which there is some debate among economists -- and showed a gain of 259,000 jobs in June.

"This is a strong recovery," he said. "It's a recovery that will continue to see growth and expansion and lots and lots of jobs created in the months ahead."  Top of page

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